PCG - NYSE

Ladies and gentlemen thank you for standing by. My name is Brent and I will be your conference operator today. At this time, I would like to welcome everyone to the PG&E Corporation Second Quarter 2023 Earnings Release Call. [Operator Instructions] It is now my pleasure to turn today's call over to Mr. Jonathan Arnold Vice President of Investor Relations. Please go ahead.

Good morning everyone and thank you for joining us for PG&E's Second Quarter 2023 Earnings Call. With us today are Patti Poppe, Chief Executive Officer; and Carolyn Burke, Executive Vice President and Chief Financial Officer. We also have other members of the leadership team here with us in our Oakland headquarters. First, I should remind you that today's discussion will include forward-looking statements about our outlook for future financial results. These statements are based on information currently available to management. Some of the important factors which could affect our actual financial results are described on the second page of today's second quarter earnings call presentation. Presentation also includes a reconciliation between non-GAAP and GAAP financial measures. The slides along with other relevant information can be found online at investor.pgecorp.com. We would also encourage you to review our quarterly report on Form 10-Q for the quarter ended June 30 2023. With that it's my pleasure to hand the call over to our CEO Patti Poppe.

Thank you, Jonathan. And good morning, everyone. Thanks for joining us on what we know is a very busy earnings morning. We continue to make progress here at PG&E and this quarter is no different. Our core earnings per share of $0.23 for the second quarter bring us to $0.52 for the first half of 2023. While our first half earnings are down $0.03 versus 2022 we have not yet recognized the benefit of our general rate case. As a reminder we have a memo account in place which will allow us to book catch-up revenues from the January 1 2023 effective date once we receive a final CPUC decision. We still expect a final decision in the third quarter and we were encouraged that the CPUC affirmed this timing earlier this month. As we shared at our Investor Day in May 86% of our incremental revenue request is for core safety reliability and maintenance work. All areas where there is strong alignment with state policy goals and stakeholder priorities. While the GRC decision will be an important driver halfway through the year we remain on track to plan and laser-focused on delivering our annual guidance which we are reaffirming today. We are also reaffirming earnings growth rates of at least 10% in 2024 and at least 9% in 2025 and 2026 along with our commitment to no new equity issuance through 2024. Turning to Slide 4. We've continued to make progress in mitigating physical and financial risk. On the physical front we continue to focus on system resilience by reducing wildfire risk and preparing for the grid of the future. We continue to make progress on the regulatory front as well. For example, in the second quarter the CPUC approved over $1 billion of interim rate relief in our 2022 Wednesday proceeding. This accelerates the time line for recovering our legacy wildfire mitigation spend improves our financial metrics and allows us to deliver on needed safety reliability and customer connections work benefiting both our customers and our investors. On the legal front, at the end of May, we were pleased to settle with the Shasta County District Attorney's Office resolving the criminal charges related to the 2020

Thank you, Patti, and good morning everybody. As Patti mentioned, we are on track to deliver our 2023 financial commitments. Today, we are reaffirming EPS growth of at least 10% each year in 2023 and 2024 and at least 9% in 2025 and 2026. We're also reaffirming our commitment to no new equity in 2023 or 2024. This morning, I'll cover three main topics with you: our 2023 results, the simple affordable model and our value proposition. Let's start on Slide 10. We are on track to meet our 2023 EPS guidance of $1.19 to $1.23. Our first half results and drivers of our forecast for the second half of 2023 are presented here. On a year-to-date basis our result is $0.52 per share, including $0.23 in the second quarter. Our first half EPS is on plan. And as Patti mentioned our plan to reduce non-fuel O&M by 2% is also on track. So far this year we've realized $0.04 of favorability from our cost-saving efforts and we've redeployed $0.02 right back into the business. Although our year-to-date result is down $0.03 compared to 2022, a key driver for the second half of 2023 will be a final decision in our GRC. As a reminder the CPUC has approved a standard memo account, which allows us to record catch-up revenues back to January 1st once the final decision is received. This explains the $0.01 of timing as shown here and also why you don't see customer capital investment as a growth driver in our first half results. Finally, we're showing $0.04 of other. This is a combination of many smaller items over the first and second quarters including higher property taxes reflecting our increased customer capital investment. On Slide 11 our capital investment plans have not changed from Investor Day when we provided insight into our 10-year plan. Our 9.5% rate based CAGR reflects the abundant opportunities to invest capital into our system for the benefit of customers. Please recall this is a no big bets approach focused on safety and reliability with growth benefiting both our customers and our investors. Just as our earnings grow with capital growth it's worth repeating that this capital investment growth above depreciation also provides additional cash flow to help internally fund the investment. Moving to slide 12. We continue to see ample opportunities to expand customer investment beyond the $52 billion planned through 2027. We are fortunate to have substantial needs for investment in our electric distribution and transmission systems as well as opportunities to further improve quality and reduce cost. Our simple affordable model is at the heart of our plan. It is how we plan to keep bills affordable for our customers, which takes us to Slide 13. As you've seen we revisit this slide with you each quarter providing proof points on our execution. Patti already provided an update on our O&M cost reduction progress. And now I'm excited to share some recent efficient financing developments. Our minority sale of non-nuclear generating assets or Pacific Gen continues to move through the regulatory process. We launched the marketing for the proposed sale last month. We expect these attractive and differentiated assets to draw strong investor interest as they are fully regulated with a favorable ratemaking framework. And with California's environmental policies in place, we see a very supportive backdrop for growth opportunities. As a reminder the Pac Gen regulatory and sales processes will progress unparallel time lines. Additionally last month we submitted a loan application to the Department of Energy under the Energy Infrastructure reinvestment program. Our application is all about enabling California's clean energy transition. If our application is approved, we would expect to draw down these funds starting in 2024 and through 2026 to align with spending in our GRC cycle. This is another example of how we're pursuing efficient financing to deliver for our customers and our communities at a lower cost. In addition to providing a diversified funding source for our large capital program, lower cost DOE loans could result in hundreds of millions of dollars in interest expense savings for our customers over the life of the loans. This means that our planned rate base growth could come at a lower cost for our customers creating more capacity for investment in customer benefiting infrastructure, definitely a win-win. We plan to submit part two of our application in the coming months in which we will work with the loan program office on the technical and financial evaluation of our application. I'll end here on slide 14 with a reiteration of dividend timing. Specifically, we expect to reach a cumulative $6.2 billion in non-GAAP core earnings since our emergence from Chapter 11 during the third quarter. As we have said before, this timing remains subject to assumptions including the timing of major regulatory decisions. In practice, this means that our Board could have the opportunity to declare a dividend as soon as our third quarter earnings call. We are committed to restoring a dividend and recognize its importance to traditional utility investors. But let me be clear, we plan to recommend to the Board that we start out with a small dividend likely lower than some published estimates. This will allow us to continue prioritizing needed capital investment including safety and physical risk reduction on behalf of our customers. While we would expect to grow our dividend at least in line with earnings per share, our initial bias will be towards premium EPS growth versus higher yield consistent with our capital investment priority. Our physical and financial risks are being mitigated. Our capital investment need and growth forecast benefits customers and investors. Our EPS growth is among the very best as our stock price recovers from a deep discount. And our value proposition is strong and improving every quarter. And with that I'll hand it back to Patti.

Thank you, Carolyn. Before we take your questions, I wanted to take a quick moment to highlight two other pieces of news from PG&E this week. Yesterday, we issued our annual corporate sustainability report which outlines major strides we've made towards the triple bottom-line of serving people the planet and California's prosperity. Using statistics and stories the report details meaningful action we took last year in service of our home towns throughout Northern and Central California. Second as highlighted here on slide 15 we hosted our inaugural Innovation Summit earlier this week drawing over 2,000 in-person and virtual participants from venture capital, technolog, academic and financial world. Risk mitigation in particular wildfire has rightly been Job one and our main priority. At the same time, our California service area is at the very forefront of the energy transition given our state's bold vision for the future. With this in mind, we created our innovation research and development team to capitalize on breakthrough opportunities drawing on the external innovation ecosystem to inspire bold new ideas for safety and our operations. For example, during the Innovation Summit, we featured a first-of-its-kind version of Schneider's electric distribution energy management system operating on the Microsoft Cloud. On the topic of innovation, I'm also pleased to announce that the XPrize competition featured at our Investor Day has already received interest from 120 individual teams out of 32 different countries. Talk about breakthrough opportunities. The objective of this competition is to be able to pinpoint ignitions from space within 60 seconds or less and autonomously suppress wildfires within 10 minutes. I'm excited to see what these brilliant minds produce. I'll wrap up on Slide 16, by saying we feel good about the progress we are making, mitigating physical and financial risk. We're confident in the protections we have in place for this wildfire season. And we see several catalysts ahead for investors including restoration of our common stock dividend and a final decision in our 2023 GRC. We see the progress and feel the momentum. We hope you do too. With that operator, please open up the line for questions.

[Operator Instructions] Your first question is from the line of Shar Pourreza with Guggenheim. Your line is open.

Hey, guys. Good morning.

Good morning, Shar.

Good morning. Patti I just wanted to start off with a question on the GRC timing. It seems there's obviously some filing still happening. They're coming through and the PD still isn't issued as you kind of highlighted there. I guess, what's your level of confidence here in getting a PD and what is a potential delay in the PD due as we're thinking about disclosures and when you recognize earnings and update guidance including obviously, enactment of official dividend policy? Thanks.

Okay, Shar. Thank you for that's a very robust question. I'm going to get right at it. First let me remind you that our GRC is 85% safety, reliability, resilience work. Our customers are demanding this work of us and our stakeholders are really supportive of us doing this work. So I think that bodes very well for our GRC and its outcome. It's important that we remain aligned with our regulators to deliver on a very important regulatory outcome that is so important and so good for customers. So I'll just start with that. But just – I'll just back up and remind you about the timing. So the CPUC voted to extend the GRC deadline from June 30 to December 30. They needed that calendar so that the final decision could be issued still in Q3, which they have been pretty clear that it was going to be issued in Q3. So while the CPUC hasn't issued their proposed decision, the July 13 order included language that reinforced the timing. The commission, in fact the quote is that the commission still anticipates consideration of this matter on a commission agenda in the third quarter of 2023. We were very grateful for that reiteration of the importance of the timing. I think it's been really clear. We've been working closely with our stakeholders here in the state, how important it is that we get a timely GRC sold that. We can do this very important necessary work for our customers. So all that to say, obviously, we plan conservatively on the expected outcomes and we've got a plan that we think is defendable and is going to be welcomed by the commission but we're also putting in our contingency planning to make sure we're ready. Now I'll just close out with your final question about the implications for the dividend. I think Carolyn was very clear in our prepared remarks about the importance of the dividend, why we know that it's important to establish a dividend. But what's most important is that we're doing the right work for customers and we've got the GRC is obviously, the most important that we have a good GRC outcome. Now we're in the final stages of that GRC process. We've said that the dividend is dependent on regulatory timing, and I don't want to get ahead of ourselves at all here. We're going to watch how that plays out, and then we'll give an update and let you know the status on the third quarter call.

That's clear. Thanks for that color. And then separately looking at the $5 billion bucket of potential incremental upside CapEx opportunities you've added a bit more tail around where some of those opportunities could come from. I'm wondering if you could give us a sense of if there are any near-term opportunities to pull any of those programs into the CapEx plan or just a little bit of color around the cadence and the timing for when those opportunities start to crystallize?

Yes, David I'll take that question. So I would say the two areas that we see the most potential in terms of working our model to see that they're going to be affordable is in the transmission area and new customer connections. So we are looking at partnerships. We are looking at additional new customer -- we've made a significant progress in terms of looking at our overall process of bringing those connections online sooner. And so there's -- I would say those are the two areas that you could expect more insight in over the coming earnings calls.

And David all of that is contingent upon affordability for our customers and do we in fact have headroom to go ahead and add additional capital. And so all of our waste elimination work all of our cost savings work some of our big strategic efforts to reduce cost and get more streamlined and then the little itty-bitty ideas that all add up give us an opportunity to then deploy that more -- that capital for the benefit of customers when we can be sure that they can afford it. So that's always the equation that we're running.

Understood. Makes sense. Thanks so much.

Thank you.

Your next question is from the line of Julien Dumoulin-Smith with Bank of America. Your line is open.

Hey, good morning, Patti and Carolyn. Thanks for the time.

Good morning, Julien.

Hey, good morning. Just following up on the last one actually I'll pivot to this direction. The DOE headlines here. Maybe we could talk a little bit about how you think about is that incremental or not? How do you think about that in terms of the projects that you already have underway versus being incremental? Does that displace some other projects? Just kind of think about the financial impacts of pulling down on that DOE money obviously clearly beneficial in any regard for customers?

Julien, this is Carolyn. Thank you for the question. So it is not incremental. We believe that we're going to use this financing to fund the programs that we have already in place. We have a very well laid out plan. We have more than enough to invest into our system. And so this financing is simply going to allow it to be more efficiently financed.

Okay. All right. Fair enough. I'll leave that there. Maybe just tipping to another subject real quickly here, how do you think just the capital structure, again this is more a financing -- do you no longer need or expect to need the capital structure waivers, you think about kind of a normalization, we talk about dividend today, do you think about capital structure tomorrow, et cetera?

Yeah. I think -- two things just to recall I mean I'll reiterate the no new equity in 2023 and 2024. And we have a commitment to pay down the parent debt of about $2 billion plus by 2026. So in terms of that waiver, we're monitoring that. We're on track. We've made improvements over the last couple of years and we continue to foresee those improvements. And we don't -- if the waiver is in place until we'll be able to make that waiver until June 2025, yeah, I thought it was 2025 sorry. Couldn't it remember it was June or March?

Wonderful. Okay, excellent. I’ll leave it there. I will see you guys soon. Thank you.

Great. Thanks, Julien.

[Operator Instructions] Your next question is from the line of Ryan Levine with Citi. Your line is open.

Hi, good morning everybody.

Good morning, Ryan.

Hi. In terms of the dividend, are there any other regulatory items outside of the GRC that could impact the timing of reinstating the dividend with the third quarter call or some footnotes in your prepared comments? I just wanted to clarify what was being intended with that statement.

Yeah. No it's primarily the GRC, Ryan.

Okay, great. And then on the heels of the Innovation Summit, curious your latest thinking about how artificial intelligence could impact your business both from a cost, capital or risk standpoint going forward and what work streams do you have to incorporate that?

Yeah. Ryan that innovation summit was just spectacular. We opened the doors to the future with thousands of people participated in that event from all across the globe. We have people signed in from Australia and Israel and UK and all across the country here in the US as well. We have standing room only here in California. It was very fun to see the appetite to support our True North strategy and the key enablers to a pathway to the clean energy transition and a robust gas system. It was really exciting to imagine how all those partnerships might emerge from that date. And I'm glad so many investors signed on for that day as well. But back to your question about AI. First of all, I'll remind you that we've been using artificial intelligence already. And in fact in 2019, we introduced our wildfire spread model. That's the technology [ph] platform that helps us forecast where our highest risks are and what a wildfire spread might look like. We operationalize that artificial intelligence in 2021. And we've been utilizing that routinely. And that's just the tip of the iceberg. We're also using AI for asset health as we do our inspections and then coordinating between drone inspections and data collection. It's very hard for humans to review photos. We take all of these images and humans can make an error, it's a judgment. But an artificial intelligence platform that can review all of those visual images can truly automate our response and then build into our asset health plan what next might fail and be predictive in that way. And so we're pretty excited about the application of AI to continue our system safety efforts and our asset health. But then there are simple things, like just automating simple back office processes and administrative tasks. So we're playing with that. And then things like customer service. And so we're really excited about the applications of artificial intelligence. We know there's, things to be cautious about and we're working to make sure that any platform that we use protects our customers' data and any kind of company secret data. We make sure that that safety exists for our data as well as our physical assets, so, much more to come in AI for PG&E for sure.

Great. Looks forward to it, I guess in terms of the DOE loan congratulations on receiving that subsidized capital. Outside of federal dollars, are there any state programs that you're looking to tap into to help mitigate bill impact through different California initiatives?

Yeah. We have several California initiatives. So things like the California Climate Credit. We accelerated that earlier this year so that it was during the heating season to offset some of those gas charges that were so high at the beginning of the year. We have our Income Qualified Customer Assistance Programs. We call that CARE. It's a very robust income-qualified program to help customers, who don't have the ability to always afford their utility bill. We make sure that they're cared for and have the energy that they need. There's a California Arrearage Payment Program, where for example, more than 300,000 customers who were experiencing financial hardships during the pandemic, received an automatic one-time build credit in February of 2023. And then, back to your innovation point, earlier Ryan, the $83 million EPIC program is a source of funding so that we can invest in doing new technologies that make it safer and more affordable for customers in the future. So that's a really exciting part of our portfolio too that benefits customers.

Great. Thanks for taking my questions.

You're welcome. Thanks, Ryan.

There are no further questions at this time. I will now turn the call back over to the CEO Ms. Patti Poppe.

Well, thank you everyone for joining us today. I know you've got a busy calendar. And we're grateful for your time. And we look forward to seeing you soon. Be safe out there.